Introduction
I imagine the dream of every Formula 1 driver is to win a Championship, the dream of every football player is to win the Super Bowl, and the dream of every politician to eventually call the Oval Office their workplace.
Healthcare/biotech investors probably dream of their companies launching a product that is as successful as the latest weight loss drugs from Eli Lilly (LLY) and Novo Nordisk (NVO), whose shares have gained 611% and 471% over the past five years alone, respectively.
This rally, which is already something worth putting in future history books, seems to benefit from an endless stream of good news, including a massive upside adjustment to the total addressable market estimate.
The obesity market — currently dominated by Novo Nordisk A/S and Eli Lilly & Co. — is now set to reach $130 billion by 2030, according to Goldman Sachs analysts led by Chris Shibutani. That’s up from a prior forecast of $100 billion. - Bloomberg
As a result, Lilly is now the world's biggest healthcare company, while Novo Nordisk is the most valuable company in Europe.
With that said, I like the growth story and wouldn't bet against it.
However, I prefer biotech companies that are flying under the radar - at least relatively speaking.
This includes AbbVie (ABBV), my largest healthcare investment, and Amgen (NASDAQ:AMGN), a company I have on my watchlist.
My most recent article on Amgen was written on January 22, when I called it "One Of My Favorite Healthcare Stocks" in the title.
Since then, shares have returned 2%, which is not impressive in light of the S&P 500's 9% return.
In this article, I'll elaborate on my bull case, including some of the company's impressive new products that could fuel impressive growth for many years to come.
So, let's get to it!
Innovation-Fueled Growth
As I have written in almost every prior article, AMGN is one of the most innovative healthcare companies, as it has a massive product portfolio, a strong pipeline, and a healthy balance sheet to support both innovation and shareholder distributions.
Bear in mind that established biotech companies with strong product portfolios usually have wide-moat businesses, as it is extremely expensive to bring a new drug to market.
The mean cost of developing a new drug has been the subject of debate, with recent estimates ranging from $314 million to $2.8 billion. - NIH
In this case, the portfolio of this California-based giant includes a variety of therapeutic areas, including general medicine, oncology, inflammation, and rare diseases.
In the first quarter of this year, these products provided the company with 22% revenue growth, bringing total revenue to $7.4 billion.
This was driven by strong growth in key drugs, including Repatha with 33% growth, EVENITY with 35% growth, BLINCYTO with 26% growth, and TEZPIRE, which saw 80% higher growth rates.
Repatha, for example, saw record sales of $517 million. This came with a 44% increase in volume.
According to the company, this success was supported by expanded coverage and the removal of prior authorization requirements, which made the drug more accessible to patients.
Repatha is a drug for cardiovascular diseases that continues to show strong progress, according to recent developments.
Repatha continues to be an effective option in helping people with cardiovascular disease manage their LDL-C, and this FOURIER-OLE data further demonstrates that long-term lowering of LDL-C levels come with no decline in cognitive function. - PR Newswire
On top of that, Amgen is growing its international footprint.
During its 1Q24 earnings call, it said that measures to expand its global footprint are yielding positive results.
For example, EVENITY has become the segment leader in Japan, capturing 46% of the bone builder market.
Meanwhile, UPLIZNA, which is Amgen's fastest-growing biologic for neuromyelitis optica spectrum disorder ("NMOSD"), has been launched in multiple markets, including Canada.
UPLINZA is one of the key products it bought by acquiring Horizon Therapeutics and a key part of its rare disease portfolio.
So far, this has been a huge success.
In 1Q24, sales of this drug rose by roughly 60%. The smaller TAVNEOS drug, which targets ANCA-associated vasculitis, saw 122% growth.
ANCA-associated vasculitis is "a group of relatively rare diseases (Prevalence: 1-5/10.000) characterized by recurrent, chronic small vessel inflammation and deleterious organ damage," according to Leiden University Medical Center.
Before the launch of TAVNEOS, treatment of severe conditions was extremely difficult.
Speaking of good news (did I mention I love healthcare innovation?), the company used the Bank of America Health Care Conference last month to explain that it is seeing progression in promising oncology treatments like Tarlatamab.
According to the company, this bispecific antibody and T cell engager targets small cell lung carcinoma ("SCLC") cells and is expected to receive FDA approval soon.
So far, clinical trials have shown significant survival benefits, potentially doubling the overall survival rate for SCLC patients.
Personally, I have spent some time researching these survival rates, and I'm truly blown away by the progress of innovation in this field (in general).
Furthermore, the company is a holding of the Amplify Weight Loss Drug & Treatment ETF (THNR), which is a result of the buying panic in stocks like Eli Lilly.
It has a 5% weighting, as it's also investing in weight loss drugs that could potentially disrupt the market.
During the aforementioned conference, the company noted it is making significant progress in its MariTide (AMG 133) drug, which is designed to combat obesity and related conditions through a somewhat different mechanism.
In this case, it's combining the inhibition of the GIP receptor with GLP-1 agonism.
I don't blame you if this sounds complicated. What matters is there's evidence it's working.
[...] we confirm the GIPR antagonist and GLP-1R agonist activities in cell-based systems and report the ability of AMG 133 to reduce body weight and improve metabolic markers in male obese mice and cynomolgus monkeys. - NIH
The company is planning an extensive Phase III program (it's currently in Phase II), which aims to explore just how effective the drug is in various obesity-related conditions, including diabetes.
This sets the drug apart, as it is expected to not only combat obesity-related issues indirectly but directly as well.
Hence, in order to prepare for higher demand, the company is currently investing in additional production capacity. Its North Carolina site is expected to open in 2026.
Shareholder Value
As a result of its strong financial performance, the company hiked its guidance across the board, expecting higher revenue and adjusted EPS without higher CapEx.
This bodes well for shareholders.
After hiking its dividend by 5.6% on December 12, it currently pays $2.25 per share per quarter. This translates to a yield of roughly 3%, supported by a sub-50% payout ratio.
This dividend comes with a five-year CAGR of 9.6% and 12 consecutive annual hikes.
Essentially, the company has hiked its dividend every single year since it started paying a dividend.
It also helps that it has a balance sheet with a leverage ratio in the low-2x range and a BBB+ credit rating.
With regard to its valuation, AMGN trades at a blended P/E ratio of 16.1x, which is a bit above its long-term normalized P/E ratio of 15.4x.
However, that's no big issue, as AMGN has a favorable growth profile, with expected annual EPS growth between 5-6% through 2026 (see the FactSet data in the chart above).
After that, I expect these growth rates to accelerate, boosted by a potential release of its obesity drug and other pipeline projects that are in a Phase III study or getting close to that stage.
While this obviously comes with approval risks, I am very upbeat about AMGN's future and believe it would make a lot of sense in my portfolio next to AbbVie - I just haven't figured out if I want to own two biotech giants in what is now a 21-stock portfolio.
Other than that, I am very upbeat about AMGN and believe it has the potential to return north of 10% on an annual basis for the foreseeable future.
Takeaway
I believe Amgen's innovation-driven growth, fantastic financials, and rapidly expanding global footprint make it a standout in its industry.
Despite recent stock price underperformance, the company's strong product portfolio, including promising new drugs and advancing obesity research, positions it for significant long-term growth.
Meanwhile, with a healthy balance sheet, a fantastic dividend track record, and a favorable valuation, Amgen is poised to deliver elevated long-term returns.
Pros & Cons
Pros:
- Innovation: Amgen has a robust product portfolio and a strong pipeline.
- Financial Strength/Dividends: Amgen has solid revenue growth, a healthy balance sheet, and consistent dividend growth.
- Global Expansion: The company has an increasing international footprint, supported by its growing product portfolio.
- Valuation: A favorable P/E ratio with consistent EPS growth paves the way for favorable returns.
- Obesity Drugs: While it's still in an early stage, the company's obesity drug could be a game-changer in the years ahead.
Cons:
- Approval Risks: Pipeline projects, including the obesity drug, come with approval uncertainties.
- Competition: Major growth markets like obesity and oncology come with significant competition.
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